Are TPD Insurance Premiums Tax Deductible?

Yes, TPD insurance premiums are tax deductible when an any occupation total and permanent disablement insurance policy is owned by your super fund or when you have the policy set up as a Key Person policy which provides revenue protection to the business should the key person become totally and permanently disabled.

Read our Total and Permanent Disablement Insurance Tax Guide for more!

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no-1When are TPD insurance premiums tax deductible?

Personal Insurance

Premiums for policies which are personally owned or personal in nature, including policies that are jointly owned, will generally not be tax deductible, while any benefits paid out will not be tax accessible.

Keyman – Revenue Protection

Premiums for Revenue Protection, which protect a businesses revenue due to the loss of a key person, will generally be tax deductible however any benefit payments will be taxable.

Keyman – Capital Protection

Premiums for Capital Protection, which is designed to pay off debts and protect the business in the event a key person who is a guarantor on business loans is required to exit the business, generally does not allow tax deductible premiums while benefits are not tax accessible.

Superannuation

In the past, all premiums for Total and Permanent Disablement Insurance policies taken out through your super fund were fully tax deductible premiums to the fund. Recent changes in 2011 to the tax law mean that not all TPD Insurance premiums are fully tax deductible when the policy is funded through your super and not all lump sum benefits are taxable.

This is when your tpd insurance premiums can be tax deductible

Ownership of Insurance PolicyPurpose of Insurance PolicyPremiums Tax DeductibleLump Sum Benefit Tax Assessable
Personal/Spouse/JointPersonalNoNo
KeymanRevenueYesYes
KeymanCapital LossNoNo
SMSF/Super FundPersonalNot all definitions of TPD meet the requirement – please see below for further informationMust satisfy condition of release

Please be advised that this is a general guide only and we are not registered tax agents under the Tax Agent Services Act 2009; and if you intend to rely on the advice to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. Please consult your tax accountant or speak to one of our financial advisers for further information.

no-2Changes in the Tax Law that took effect in 2011

In 2011, the Australian Taxation Office outlined that in order for total and permanent disability premiums to be fully tax deductible, the cover provided must meet the definition of a disability superannuation benefit.

This benefit is defined as a person who is unlikely to ever be able to be gainfully employed in an occupation for which they are suited for by means of training, experience or education.

With this change, those who had the Own Occupation definition would have an issue in receiving fully tax deductible premiums

no-3TPD Cover inside Superannnation

Any Occupation

The Any Occupation definition generally defines someone who is totally and permanently disabled and unlikely to ever be able to work in an occupation they are reasonably suited for due to training, education or experience.

As this definition is very similar to the disability superannuation benefit definition above, generally premiums for policies with the Any Occupation definition are fully tax deductible to your super fund.

Own Occupation

Policies with the Own Occupation definition are generally defined as someone who is totally and permanently disabled and unlikely to be able to return to their own occupation.

As the Own Occupation definition is broader and does not closely match the disability superannuation benefit definition, generally premiums for Own Occupation are not fully tax deductible to a super fund.

The portion of the TPD Insurance premium that is tax deductible when the policy is funded through a super fund

Policy Type Deductible Portion of Premium
Any Occupation 100%
Any Occupation with one or more of: 1. Activities of daily living
2. Cognitive loss
3. Loss of limb
4. Domestic home duties
100%
Own Occupation 67%
Own Occupation with one or more of: 1. Activities of daily living
2. Cognitive loss
3. Loss of limb
4. Domestic home duties
67%
Own Occupation combined with life cover 80%
Own Occupation combined with life cover with one or more of: 1. Activities of daily living
2. Cognitive loss
3. Loss of limb
4. Domestic home duties
80%

Source: OnePath Technical Services Bulletin, No. 28, 1 October 2011

no-4Lump Sum Benefits & Tax

A common misconception is that all lump sum TPD payments released from a super fund are tax free.

Generally, lump sum benefits paid to those aged 60 and over will be tax free however for those aged under 60, only part of your lump sum benefit will be tax free, with you required to pay tax on the remainder of the benefit.

Please be advised that this is a general guide only and we are not registered tax agents under the Tax Agent Services Act 2009; and if you intend to rely on the advice to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. Please consult your tax accountant or speak to one of our financial advisers for further information.

Published: October 20, 2016

Ask an Expert?

4 Comments

  • Rajeev |

    I have a Life and TPD Insurance Cover of $1.7 million each outside the AMP super with the definition of ‘Own Occupation’ and I do not want to lose that, so how can I claim the 67%-80% tax deduction on the premium by either keeping it outside or shifting it inside the super provided the own occupation definition is not lost?

    • SPECIALIST
      Brett Lenertz |

      Thanks Rajeev for your very interesting question. I can completely understand that you would want to maintain your ‘Own Occupation’ definition of your TPD Policy. You essentially can’t claim a tax deduction currently as I am sure you are aware as the TPD Insurance is held outside of your super and therefore if a lump sum benefit is payable to you it would not be taxed.

      You have two options you can consider which may have some consequential benefit to you. You could look at ‘Flexible Linking’ where your Life Policy is held within super but your ‘Own Occupation TPD’ is outside super but the policies are linked, which provides discounting to both your premiums and will free up cash flow as your Life Insurance premiums will be deducted out of your superannuation balance plus if you were to claim on the TPD you are not governed by the superannuation ‘condition of release’ rules. Alternatively, you could look at a ‘Split TPD’ arrangement where you have a portion of ‘Any Occupation TPD’ inside your super and a portion of ‘Own Occupation TPD’ outside of your super and of course the Life Insurance inside the super which gives you the linking discount and frees up some cash flow as the Life and ‘Any Occupation TPD’ will being coming out of your super balance.

      ‘Any Occupation’ premiums are fully 100% tax deductible within superannuation providing the cover meets the definition of the ‘disability superannuation benefit’ which is generally someone who is unlikely to ever work in an occupation in which they are reasonably suited due to their training, education or experience. Unfortunately, as it is after July 1st, 2014 and even if you set up your ‘Own Occupation TPD’ policy before then, you would not be able to change the policy to be funded through your super to claim any tax deductions as there would be a change in the policy ownership and the original policy would have to be cancelled and you would be applying for a new policy.

      This link will provide you with further information that you may find beneficial – TPD in Superannuation. Thank You

  • Alan William |

    Hi. Last year $356.44 was discounted in my superannuation for Default Unit Death Premium and $603.00 for Default Unit TPD Premium. Can I claim it as tax-deduction?

    • SPECIALIST
      Russell |

      Hi Alan

      While I can’t provide you with taxation advice (I would contact your accountant to confirm your personal situation) however I can provide you with some general information.

      Generally you can’t claim premiums paid by your super fund in your personal tax return as a deduction, however the complying super fund would be able to include the life and TPD premiums as an expense (deduction) within the fund. Therefore the complying fund would generally pay 15% tax on net income of the fund for the year.

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